Management Accounting: Systems, Reporting, and Budgetary Control

This report provides a comprehensive overview of management accounting principles, methods, and systems. It explains different management accounting systems, including cost accounting, job costing, price optimization, and inventory management. The report also discusses various management accounting reporting methods such as cost reports, revenue reports, stock and production reports, budget reports, and performance reports. It evaluates the benefits of management accounting systems and their integration within organizational processes. The report includes a detailed cost analysis using marginal and absorption costing techniques to prepare an income statement. Furthermore, it explains the advantages and disadvantages of different planning tools used in budgetary control and how organizations adapt management accounting systems to respond to financial problems. Desklib provides this and other solved assignments to aid students in their studies.

Management Accounting
1

Contents
Introduction:....................................................................................................................................3
P1: Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................4
P2: Explain different methods used for management accounting reporting................................6
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing........................................................................9
P4. Explain the advantages and disadvantages of different types of planning tools used in
budgetary control.......................................................................................................................15
P5: How organizations are adapting management accounting systems to respond to financial
problems....................................................................................................................................18
Conclusion:....................................................................................................................................22
References:....................................................................................................................................23
2

Introduction:
This report is generated to give management an understanding of basic principles of management
accounting. The different methods and approaches of management accounting system are used to
prepare and deliver various useful reports to the managers of company. Management accounting
ensures quality management with organization and the same is necessary to achieve the goal of
sustainable success. Assignment explains the cost accounting system also. Costing tools are
used to control and manage the cost of every business activities. For identifying the cost of
production and to calculate profit marginal and absorption costing techniques can be used by
manager. Planning tools of management accounting helpful to arrange the business process
according to the targets of company and in addition it also provides a base to determinate the
non-financial factors of business for long term growth. Budgetary control techniques are also
helpful for business in numerous ways. It helps to make appropriate future policies for the
development of business organization.
3

P1: Explain management accounting and give the essential requirements of different types
of management accounting systems.
Management accounting: management Accounting is the procedure of examination,
determination and reporting of financial data compile with the help of monetary accounting and
cost accounting, keeping in mind the ultimate goal to help management during the time decision
making, production of strategy and routine task of a business. Along these lines, it is obvious
from the over that the management accounting depends on accounting and costing (Shen, et.al.,
2016).
Management accounting includes:
Image 1, steps in management accounting
(By Author, 2018)
Various management accounting approaches and their requirement is as follows:
Cost accounting system: The cost accounting framework helps the management in assessing the
cost of each type of product which might be required in income examination, cost control and
stock management. The different necessities of this approach are:
 Coordination between different departments is essential for this approach.
 Regular stock audit reacquired for the effective use of cist accounting system.
 Proper and effective internal stock audit system is necessary under this method
 Proper inventory management with the appropriate order and storage system is required
to obtain benefits of cost accounting system (VanBaren, 2017).
4
Planning
Implementation
Controlling

Job costing: job costing framework is a procedure of collecting the data about the cost of a
particular item produced or group of items. This approach basically used to identify the cost
when company producing the products in different groups and groups are different from each
other. Under this method:
 It is necessary for cost plus contracts.
 Under this method it is necessary that the direct cost of production charged to the product
directly and indirect cost are distributed as per standards.
 The approach is suitable in the situations where the products are created after an affirmed
order is gotten.
 It is necessary that each job group contains a identification number for proper distribution
of expenses.
Price optimization method: this system includes the study of customer behaviour at different
price level. This approach requires:
 Previous year data of sales, prices and other financial data.
 Proper policy and planning for regular monitoring of the system.
 Proper distribution of responsibility and sound communication structure.
 Regular Help of upper level management (Shen, et.al., 2016).
Inventory management: inventory management is related with the appropriate management of
inventory. It includes the management of purchase, storage and use of raw material and goods
produced.
 Proper method of stock valuation like FIFO, LIFO, or Weighted average should be
followed in stock valuation.
 Effective physical control on stock is required.
 An internal stock monitoring system like stock audit is require for effective use of this
system.
5

P2: Explain different methods used for management accounting reporting.
Cost reports: This report contains information about the cost factors like material or labour and
the revenue related factors like sales analysis. With the help of these reports management can
examine the cost of each product and take appropriate decision for long term profitability.
Revenue reports: revenue reports are associated with the sales figures. These reports are used to
conduct the incomes analysis of business. With the help of revenue reports manager can examine
the changes in sales level and take appropriate step for every shortage (VanBaren, 2017).
Stock and production related reports: regular inventory level reports are produced to maintain
the reasonable level of stock as per production needs. Various production processes related
reports are also prepared for identifying the problems in production process. These reports are
helpful for management in numerous ways.
Budget reports: budget techniques tracks expenses, builds wealth for organization and helps in
achieving the goals. This process is used to make comparison between pre -decided standards
and actual results of business operations. It helps in the efficient planning and forecasting of
funding, strategy and decision- making.
Performance reports: various performance reports like department-wise performance report,
employee productivity report are prepared for reporting purpose. With the help of these reports
management can analyse the performance level for every department and take appropriate action
for deficiency.
6

M1: Evaluate the benefits of management accounting systems and their application within
an organizational context.
Increase efficiency: management accounting technique provides detailed performance analysis
reports of each process and department. Management can use these reports to find-out the
reasons of short performance and take decision accordingly.
Cost control: management accounting tools includes various cost control techniques. These
techniques are very useful in analysis of inventory, production and sales related problems.
Management can examine the problems and try to eliminate it.
Provides support in decision making: effective decision making requires detailed information
about financial statement. Management accounting tools can be used for generating the various
reports. Management can take effective decision on the basis of these reports (Shen, et.al., 2016).
Effective fund management: management accounting examines the funds in detail.
Additionally, it helps in keeping up the backup if there should arise an occurrence of any
direness. Further, it likewise helps in dispensing with any source inside the organization that
abuses the store.
Improved profitability: management techniques like budgetary control and capital budgeting
are used to eliminate the extra expenditure of process. This increases the profit level indirectly.
Increase the cash flow: management accounting covers the detailed study of cash inflow and
outflow. This information can be used for maintaining the appropriate level of cash within
organization for emergency situation.
Information system: Availability of accurate information is necessary for every business.
Management accounting techniques generates various reports which contain useful information
about the business. This information can be used by management for strategy planning.
7

D1: how management accounting systems and management accounting reporting are
integrated within organizational processes.
 Costing system and reports: cost management techniques and reports gives detailed
information about cost factors. Management can make deep study of each cost factor and
take action appropriately. It also ensures that correct selling price is decided for the
product.
 Production reports: the establishment of this system within organization helps the
manager to identify the perfect production cost and appropriate level of inventory to be
maintained.
 Revenue reports: this system enables the management to determinate the right price of
product. Management can make analysis about the sales and the change in demand
according to price change. This will helpful for the management to eliminate the wrong
steps taken in sales strategy (VanBaren, 2017).
 Integration of Performance reports: performance reports are prepared for identifying
the efficiency level of each employee. The same will help the company to take corrective
step on shortage determinate in performance.
8

P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing.
Marginal costing – The marginal costing technique of cost accounting is associated with
identifying and considering only the variable cost of production in calculation of unit cost of
product for the company and working out the contribution or marginal contribution achieved by
the company form the manufacturing operations. The marginal costing is also known as relevant
costing technique in which fixed costs associated with the production are ignored while
obtaining the contribution achieved and the same will not be considered in taking decision about
various proposals (Guga& Musa, 2015).
The various features of marginal costing are presented below in order to demonstrate this
technique of costing:
Feature Description
Treatment of fixed cost The fixed costs related with the company are
written off form the profit and loss statement
and the same are not used in calculation of unit
cost of production.
Decision making The concept of marginal costing is an
innovative way of accepting or rejecting the
proposals and the fixed cost are treated as sunk
cost and only marginal cost of production is
taken into consideration in decision making
(Anna, 2015).
Contribution The contribution in marginal costing is
calculated by deducting all the variable cost
form the revenues obtained by the company.
9

Absorption costing – The absorption costing technique is the traditional form of calculating the
net income or the gross income of the company after considering the cost of production and other
expenses. The absorption costing considers all the type of cost relevant for calculating the unit
cost of production and the fixed overheads are also allocated to the units of production. The fixed
overheads are allocated to the products based on pre-determined absorption rate which is
required to be obtained after reasonable assumptions and estimations (Guga& Musa, 2015).
The various features of absorption costing are presented below in order to explain this ion
more detailed way:
Features Description
Treatment of fixed cost The fixed overheads in this type of closing
method are allocated on the basis of
determining the absorption rate and base on the
normal capacity of production.
Decision making The decisions taken in this costing method are
based on the full cost achieved by the
company.
Contribution There is no concept of calculating contribution
in this costing method and only net profit is
determined after deducting all the selling and
distribution expenses form the gross profit
acquired by the company(Hemmer &Labro,
2016).
10

M2. Apply a range of management accounting techniques and produce appropriate
financial reporting documents.
ABC Ltd. Presents the monthly information as presented below for the month of September:
Particulars Amount (£)
Material used 8 per unit
Labour cost 5 per unit
Variable cost of overhead 2 per unit
Fixed overheads 5 per unit
Fixed selling and administration expenses 10000 per month
Variable selling and administration
expenses
15% of value of revenue
Selling price is £35 per unit and sales were 1500 units while production was 2000 units.
Calculate cost using absorption and marginal costing.
11

The income statement as per marginal costing is as under:
W
orking Note:
.
12

The net profit of the company as per absorption costing method is determined as under:
Working Note:
13

D2. Produce financial reports that accurately apply and interpret data for a range of
business activities.
Reconciliation statement:
Working Note:
14

P4. Explain the advantages and disadvantages of different types of planning tools used in
budgetary control.
The various planning tools which are used in budgetary planning in an organisation are as
follows:
Standard costing – The standard costing technique is a comparative way of measuring the
performance of an enterprise in regard to the standards established for performing the various
operations in a company. The standard costs are estimated based on the assumptions and
estimations made by the management of the company (Hemmer & Labro, 2016). The various
advantages and disadvantages of standard costing in perspective of budgetary control are
explained below:
Advantages:
 The system of standard costing helps in making evaluation of the various proposals in
regard to the standard cost determined and therefore proper budgeting can be done about
the various proposals and projects under consideration.
 The budgetary control implemented in the enterprise will be effectively managed by cost
reduction d cost control strategies implemented in this system of costing.
Disadvantages:
 The limitation is associated with transferring the powers to the various participants in the
standardisation process.
 The standards can lead to resistance among the various employees of the
company(Amirya, et. al., 2014).
Responsibility budgeting – The process of responsibility budgeting refers to the budgeting
process in which various types of accountability bare fixed for each of the individual
departments and processes of the company while implementing the budgetary control in the
enterprise.
15

Advantages:
 The motivation can be increased for the managers for tea res of operations they control;
in budgeting process.
 It helps in encouraging the new initiatives and opinions (Ada & Ghaffarzadeh, 2015).
Disadvantages:
 It leads to the confusion among the results of the division and performance of manager.
 The short term results are more concentrated in comparison to long term results.
Variance analysis – The variance analysis is a technique in which the budgeted results of the
company are compared with actual results and the variances are obtained in order to control the
inefficiencies and other problems associated with the various operations of company.
Advantages:
 The inefficient operations can be worked and improved by this method of management
accounting.
 The personnel can be made responsible for his part of work performed in the
manufacturing operations.
Disadvantages:
 The skills required to perform the technique is complex and therefore it is hard to find it.
 The technique is costly and requires lot of efforts in the case of small enterprises
(Amirya, et. al., 2014).
M3. Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Planning – The planning tools will help the management in evaluating the various results
obtained and the future course of action can be made in accordance of the various results
obtained.
16

Organising – The function of organising can be performed by analysing the current performance
of the company and taking into consideration the current structure of company present.
Controlling – The cost reduction and cost control strategy as suggested by these planning tools
will enable the company and management to base their budget and cost allocation appropriately
(Ada & Ghaffarzadeh, 2015).
17

P5: How organizations are adapting management accounting systems to respond to
financial problems.
In modern business scene management accounting systems adopted due to various problems.
Management tool provides a systematic answer about these problems. The main problems are:
Fund related problems: The issue of fund lack emerges because of inappropriate financing
choice and accessibility of basic assets auspicious to the organization. The same can be stopped
by embracing management accounting practices and strategies for appropriate fund related
arranging and choosing the best way of financing choice accessible to the organization
(Bizfluent, 2018).
Performance related problem: performance related problems are arises due to improper
training and production process. Management can solve this problem by identifying the liable
factors and by taking the remedial action for mistakes.
Inventory related problem: manager can solve this problem by applying the inventory
management system within organization.
Following tools are used to solve these financial problems:
 Benchmarks: Benchmarking is the process of comparing real outcome and a pre-decided
execution standard. Benchmarking is utilized as a part of business for setting budgetary
and money related execution standards. A benchmark or base number is utilized to look
at real outcomes and determinate the change of the organization. Benchmarking is a
systematic approach used for improvement in business process according to the standards
of company (CIMA).
18

Image 2, Types of benchmarking
(By Author, 2018)
 Key performance indicators: KPI’s are matrix approach used to monitor the
performance of business enterprises. It measures the progress of business on the basis of
some indicators. Management should require running a depth analysis of company’s
current situation and comparing the same with KPI’s for identifying the current efficiency
level of company.
KPI’s are divided in two parts
19
Internal
Benchmarking
functional
benchmarking
competitive
benchmarking
strategic
benchmarking
Financial KPI's Non-financial
KPI's

Financial KPI’s:
 Profit margin ratios
 Operating ratios
 Liquidity ratios
Non-financial KPI’s:
 Change in cost structure
 Competition analysis
 HRM and employee turnover Ratio
 Quality related KPI’s
Budgetary targets: after the executions of budgeted strategy standard targets are compared
with the actual outcomes. Manager can use this comparison report for monitoring the
performance of enterprises.
M4: how, in responding to financial problems, management accounting can lead
organizations to sustainable success.
Management accounting helps the enterprises in following manner:
 PESTL analysis: management tool provides detailed study about environmental, social,
political and legal factors. Business organizations are crucially affected by these factors.
With the help of management tools manager can run an effective PEST analysis within
organization and take action for threats.
 Integrity between goals and policies: Application of management tools creates relation
between company’s strategy and goals which is necessary for long-term growth.
 KPI’s: It helps to generate various Key performance indicators and the same are helpful
in strategic planning for sustainable success.
 Risk control: with the help of management tools risk related with every business process
can be measured and defensive actions can be taken for every possible threats (Bizfluent,
2018).
20

 Management of funding: funds are most important part of business. With the help of
accounting tools manager create an effective control on every expense. This can
eliminate the unfair expenses and ensures the sustainable success for organization.
 Performance efficiency: tools are helpful in identifying the low performance reasons.
Manager can determinate every reason and take corrective action for every controllable
variance.
D3: Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organizations to sustainable success.
 With the help of cost ascertain techniques like absorption and marginal costing, cost of
product can be managed at fair level. Appropriate cost generates the profit for
organization.
 Various reports are produced in management accounting for obtaining the useful
information. This information can be used for various management decisions and the
same will ensure the sustainable success for enterprises.
 Management planning tools are performed with the aim of integration among business
process and company goals. This integration assures the long term growth.
 Variance analysis: variance analysis is executed with the object of identifying the
variance between standard and actual results. This is used to find out information about
the favourable and unfavourable variances. Management can point-out the reasons of
poverty and take action accordingly (Bizfluent, 2018).
21

Conclusion:
In the report I have discussed various principles and methods of management accounting which
is when going to implement in the financial reporting and recording allows efficient and
operational decision making to the management that helps the organization to increase its
success rate and growth. There are several type of cost that is related with the product that
becomes the basis for setting up the cost of the product and cost controls is going to be attained
by relating these methods of management accounting. There are various types of methods that
are absorption costing and marginal costing. Different tools like planning tools support in
accounting management that benefits in organizational processing and integration of
management reporting. This tool also permits an organization in attaining sustainability and
advanced success in future. There are more application of applying these principles that is it
allows management of cost controlling and attaining good control in marketplace.
22

References:
 Ada, S., & Ghaffarzadeh, M., 2015. Decision Making Based On Management
Information System and Decision Support System. International Journal of Economics,
Commerce and Management.
 Amirya, M., Djamhuri, A., & Ludigdo, U., 2014. Development of Accounting and
Budget System of General Services Board in Universitas Brawijaya: Study of
Interpretive. International Journal of Humanities and Social Science.
 Anna, A., 2015. Strategic Management Tools and Techniques and Organizational
Performance: Findings from the Czech Republic. Journal of Competitiveness.
 Bizfluent.com. 2018. [online] Available at: https://bizfluent.com/list-7609485-types-
managerial-accounting-reports.html [Accessed 22 Mar. 2018].
 Cimaglobal.com. 2018. [online] Available at:
http://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_benchmarking_july
06.pdf.pdf [Accessed 22 Mar. 2018].
 Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental
managerial accounting concepts. McGraw-Hill Education.
 Goddard, A. and Simm, A., 2017. Management accounting, performance measurement
and strategy in English local authorities. Public Money & Management, 37(4), pp. 261-
268.
 Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence.
Upper Saddle River, NJ: pearson.
 Guga, E., & Musa, O., 2015. Inventory management through EOQ model. International
Journal of Economics, Commerce, and Management.
 Hemmer, T. and Labro, E., 2016. Productions and Operations Management &
Management Accounting.
 jafas 2016. 8_Management_accounting. [online] jafas. Available
at: http://jafas.org/articles/2016-2-2/8_management_Accounting_FULL_TEXT.pdf [Acc
essed 22 Mar. 2018].
23

 Shen, H., Deng, Q., Lao, R. and Wu, S. 2017. [online] Ny.edu.hk. Available
at: http://www.ny.edu.hk/web/cht/nang_yan_business_journal/Nang%20Yan
%20Business%20Journal/03_paper.pdf [Accessed 22 Mar. 2018].
 Shen, H., Deng, Q., Lao, R. and Wu, S., 2016. A Case Study of Inventory Management in
a Manufacturing Company in China. Nang Yan Business Journal, 5(1), pp.20-40.
 VanBaren, J. 2017. Types of Managerial Accounting Reports. [online] Bizfluent.
Available at: https://bizfluent.com/list-7609485-types-managerial-accounting-
reports.html [Accessed 22 Mar. 2018].
24